Financial and Managerial Accounting Jan R Williams Edition 15 Chapter 21

Case 21.2 - Critical Thinking Cases - Page 957

McFriendly Software recently developed new spreadsheet software, Easy-Calc, which it intends to market by mail through ads in computer magazines. Just prior to introducing Easy-Calc, McFriendly receives an unexpected offer from Jupiter Computer to buy all rights to the software for $10 million cash.

Instructions

A. Is the $10 million offer "relevant" financial information?

B. Describe McFriendly's opportunity cost if it (1) accepts Jupiter's offer and (2) turns down the offer and markets Easy-Calc itself. Would these opporunity costs be recorded in McFriendly's accounting records? If so, explain the journal entry to record these costs.

C. Briefly describe the extent to which the dollar amounts of the two opportunity costs described in part b are known to management at the time the decision is made to accept or reject Jupiter's offer.

D. Might there be any other opportuntiy costs to consider at the time of the making this decision? If so, explain briefly.